Clive, Anybody,
At this moment my head is still spinning from the Ladder Mechanics discussed here and what Clive has been telling me I have to take for granted. . . it requires more analysis for me to understand it. I assume for now that a ladder determined by the LST method would perform better that if I take a much more aggressive trade progression as I have proposed. For now I will leave that as it is. Thanks for anyone’s input on in this.
Next to this Ladder-thing I have run into a snag with testing the X and 1/X equities that give me another head ache on top. As far as I would model a (X + 1/X) portfolio this would in principle be OK buy the what I am actually testing is pointless as I was doing the wrong thing. I ended up in vicious circle chasing my tail as I am using the EUR/USD and the USD/EUR with my AIM Trading Model as if they were two equities relative to the Euro. In the Vortex AIM system I used Euro as the account currency for both the Eur.Usd and the Usd.Eur. I have the possibility to set up a $-account for buying the Euro and an €-account for buying the Dollar. The reason for this is that the Vortex program could trade for example American Steel producer equities from the American Exchange in $ and the European equities in €
From the European Exchange in the same portfolio. The Vortex program automatically combines the $ and € trades in their own currencies and convert that to a Portfolio Value in Euro or in Dollar. That works fine.
Buy it does not work for two inverse currency pairs € --$ in one's own currency. . .this problem drove to pull out my hair as I "traded furiously” both currency pairs from a Euro Euro account.
In essence when I "buy" X= 1.3812$ for 1 Euro I do not have 1.3812 $ in a $-account but simply the Euro account is debited by 1€ and the 1.3812 is a number in the in the Portfolio with a value of 1€!
The same thing happens when I buy the Inverse 1/X =0.7240 (Value =1$). . . so it cost me € 0.7240 to buy 0.724 units of the Euro, which of course is a meaningless exercise. The Yield Performance on the Portfolio for the 28 day run stood on about -1.29% ROTAI annualised, and that gave me the clue to analyse what was happening. . .I tough I should have made a considerable profit!
Having isolated start and end points of the run it was shown
$-Rate change %=
-4.84576
€-Rate change %=
5.128786
Considering a Dynamic Trading reference case
Assuming that I had “bought” initially different values of each equity, AND if they were both equities relative to the Euro currency as I had assumed, I would have suffered a loss on the X-side of
€ -3030.85
And on the inverse side a profit on the 1/X-side of
€ 4351.82
And this relative to the €
21103
Capital at Risk for the 28 days gives a 82 % annualised on € 21103 invested and 43% simple ROI using Reserve also as invested capital. So I could not understand at first why I got –1.29% anualised ROTAI for the dynamic trading with Vortex AIM. The I analysed what I had actually done with the inverse currencies. I did nothing else but switch currencies back and forth via their exchange rate and I had two pools of currencies that went up and down while shoving some of it back and forth creating “trading loses” as the published inverse values are not fully perfect inverses of each other, or is they are, digits beyond the 4th decimal are lost.
Buy & hold gain would have been ~3 %
So, AIMing inverse equities would of course work if both values are expressed relative to the trading currency.
Trading the Euro & Dollar as back and forth As I have dine in my Test is like buying and selling an equity back an forth at constant price.
Now I will take week long rest to ease my throbbing head aches.
